IRBA Newsletter 25

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6
STANDARDS
There is an increasing trend by
regulators to place responsibility
on auditors to report separately to
a regulator on detailed schedules
of information underlying an audit
of financial statements without
performing a separate audit
or review with respect to these
schedules. Often these schedules are
prepared to meet the requirements of
regulations that include terminology
that is not precisely defined and may
require significant interpretation.
These schedules are used only for
regulator’s statistical purposes and
are not considered to be prepared
to meet the common financial
information needs of a wide range
of users. Accordingly, a regulator
does not require assurance on these
schedules in accordance with the
IAASB’s Engagement Standards
and, in fact, only wishes to know
that the information appearing on
these schedules was extracted from
the information that was subject to
the audit of the financial statements
as a whole (in accordance with
the applicable financial reporting
framework), and meets the
requirements of the applicable
regulation. The regulator is seeking
credibility, but not assurance.
There appear to be at least two
issues for the auditor:
• In terms of which standard is such
an engagement undertaken; and
• The auditor’s responsibility for
significant interpretations of
regulation.
These issues appear particularly
relevant to the auditor reporting
to the Registrar of Pension Funds
on whether Schedule IB Assets of
the Fund held in compliance with
Regulation 28 has been prepared
in compliance with Regulation 28 of
the Pension Funds Act, following an
audit of the financial statements of
a retirement fund (‘the Fund’), and
included in the regulatory return to
the Registrar.
It seems that some auditors are
issuing a form of disclaimer based
on their inability to apply significant
interpretations of Regulation 28,
while other auditors recognise that
such a disclaimer is inappropriate,
especially when an unmodified
opinion has been expressed on the
financial statements as a whole.
Further, such auditors recognise that
a disclaimer is of no assistance to the
Registrar in exercising its function as
a regulator. In such circumstances
the preparers of the return are
required to record their relevant
interpretations of Regulation 28 by
way of notes in Schedule IB, and
the auditor determines whether it is
possible to report compliance with
Regulation 28 on the basis of those
interpretations.
The Independent Regulatory Board
for Auditors (the IRBA) has met
with the Financial Services Board
(the FSB) and agreed the following
transitional arrangements, pending
the development of local guidance:
1. There is no reporting standard
at present in South Africa that
provides guidance for auditors
in such circumstances. However,
it is recognised that an auditor
who has conducted an audit of
the financial statements should be
able to report, in some way, on
the extraction of the underlying
information from the accounting
records that were the subject
of the audit engagement, in
compliance with Regulation 28.
2. Interpretation issues in the
application of Regulation 28
are the responsibility of the
preparer and not the auditor.
The preparer should prepare
Schedule IB in compliance
with Regulation 28 and any
interpretation guidance issued
by the FSB or National Treasury.
The FSB has undertaken to
communicate to the Boards of
Funds that the preparers are
required to include notes in
Schedule IB explaining their
interpretations of Regulation 28
that have been applied in the
preparation of the schedule.
3. The auditor states in an
introductory paragraph of
the auditor’s report that the
information contained in
Schedule IB has been extracted
from the Fund’s underlying
accounting records, that were the
subject of the audit engagement
on the annual financial
statements, and forms the subject
matter of the engagement to
report on compliance with
Regulation 28. The auditor
also states that the audit of
the financial statements of the
Fund for the year ended 20XX
was conducted in accordance
with International Standards
on Auditing and in the auditor’s
report the auditor expressed
an unmodified opinion on the
financial statements prepared,
in all material respects, with
the Regulatory Reporting
Requirements for Retirement
Funds in South Africa.
4. The auditor reports on whether
the auditor has determined that
Schedule IB has been prepared
in compliance with Regulation
28, based on the auditor’s work
performed. When the auditor has
made a positive determination,
the auditor states that the
auditor’s determination has
regard to the interpretations of
Regulation 28 by the preparer as
recorded in Schedule IB. When
the auditor has made a negative
determination, details are given
of any non-compliance that
came to the auditor’s attention
or of a disagreement with an
interpretation or of doubts about
the interpretation of a particular
requirement of Regulation 28
by the preparer as recorded in
Schedule IB.
5. The auditor’s report, which is
addressed to the Board of Fund,
is restricted as to its distribution
and use (to the Board and the
Registrar).
Issues to be considered by auditors when reporting
on supplementary information to Regulators
Derek Spavins
Telephone: 087 940 8820
Facsimile: 087 940 8876
E-mail: